Creating Shared Value: Redefining the Role of Business in Society Mark Kramer Founder & Managing Director, FSG Senior Fellow, Harvard University prepared for:
XI Encuentro Internacional de RSE August 30, 2011 速Todos los derechos reservados
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Chile Cannot Continue Its Remarkable Economic Growth Without Corresponding Improvements in Social Conditions • The long-term competitiveness of companies depends on social conditions − − − −
Improving education and skills Safe working conditions A sense of fairness and equal opportunity A transparent business environment
• Business has an essential role to play in solving social problems − Only companies can create prosperity that funds government and civil society − Companies can create sustainable and scalable solutions to many social problems in ways that governments and NGOs cannot − Businesses can relax the constraints that limit their growth
Past thinking about sustainability has focused too much on the friction between business and society rather than their interdependence Chile CSV August 29, 2011
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Cisco Networking Academy: Skills Training Business Problem and Innovation
• Cisco’s growth is limited by the number of trained network administrators worldwide • As a result, Cisco established the Networking Academy • Developed a distance learning program that combines a webbased curriculum with local instructors and lab facilities • Partnered with industry peers, schools, governments and universities • Focused on economically deprived regions around the world
Social Impact
•Over 10,000 Academies established in all 50 states and 165 countries •Over 4,000,000 students have been trained •More than 70% have attained a new job, a better job, increased responsibility, or higher salary Business Impact
•Alleviates a key labor constraint for Cisco customers •Students become familiar with Cisco products •Strengthened relationships with key suppliers, local businesses and government
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Novartis Arogya Parivar: Creating New Markets in Rural India
Products
Services
Results & next steps
Portfolio: • 79 pharmaceutical
Community health
Improved access to health
products in 12 therapeutic areas
Affordable: • Sandoz generics • Over-the-counter (OTC) medications & nutrients • Custom small packs branded in local dialect
education: • ~300 health educators • Focus on prevention, child & maternal health, symptom awareness
Healthcare provider education: • Address low level of medical training
Supply chain management: • Ensure continuity of supply in village pharmacies
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education and medicines for 42 million patients in 28,000 villages
Partnering with ~50 000 pharmacists and clinics
Portfolio expansion in 2011: vaccines, generics, diagnostics and more
Will pilot in Indonesia, Vietnam and Kenya (2011)
Partnering to expand access to health infrastructure financing
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Nestlé’s Farmer Programs: Building Incomes that Build Customers • Nestlé operates 63 farmer programs across Africa, Asia, Latin America and Europe • The main commodities Nestlé sources are milk, coffee and cocoa.
• Nestlé extended approximately $60 million in financial assistance to farmers in 2010. • 950 agronomists and 15,036 extension workers offered assistance to farmers in 2009 • 144,926 farmers around the world were trained in 2010
• Farmer programs combine microfinance, technical skills training, education in sustainable farming methods and improved water management, and new opportunities for women.
As farmer incomes rise, they purchase more Nestle products -creating a self-reinforcing cycle Chile CSV August 29, 2011
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Shared Value is: Policies and practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared Value is NOT: • Sharing the value already created • Philanthropy • Personal values • Balancing stakeholder interests Shared Value goes beyond traditional CSR: • CSR practices such as ethical behavior, transparency, sustainable use of natural resources, and fair labor conditions are essential requirements for any successful business
• Shared Value adds additional opportunities to improve social and environmental conditions beyond CSR Chile CSV August 29, 2011
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Creating Shared Value Redefines the Role of Business in Society • Business must create economic value by creating societal value • All profit is not equal • Profit involving shared value enables society to advance more rapidly and allows companies to grow faster
• The pursuit of shared value represents the next evolution of capitalism
Incorporating societal issues into strategy and operations is the next major transformation in management thinking Chile CSV August 29, 2011
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Redefining the Value Chain: So-Called “Externalities” Have Internal Effects
Poverty in Company’s Communty
Environmental Impact
Quality Education & Skills
Regulatory Environment
Company Productivity
Energy Use
Poor Infrastructure
Health and Nutrition Water Use
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Companies Can Create Shared Value at Three Levels
Reconceiving Products and Markets
Redefining Productivity in the Value Chain
Enabling Local Cluster Development
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Urbi: Reconceiving affordable housing in Mexico • One of the largest housing developers in Mexico, Urbi focuses on developing environmentally sustainable, social housing. • Partnering with government and financial institutions, Urbi has developed subsidized housing for hundreds of thousands of low income Mexicans, traditionally have been excluded from home ownership. • Business Impact: – Utilizing innovative construction practices and linking its construction projects to enhanced social services, Urbi has created a differentiated product with enhanced attractiveness to the Mexican consumer – Urbi’s strategy has allowed it to become the most profitable company in its industry in Mexico • Social Impact: – Increasing supply of affordable housing for low income Mexicans – Strengthening social fabric by increasing access to education, recreation, business services – Protecting environment Chile CSV August 29, 2011
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Dow Chemical: Omega-9 Healthy Oils
Shared Value Profile • Zero Trans Fat • High in heart-healthy monounsaturated fat • Lowest saturated fat of typical cooking oils and half the saturated fat of olive oil • Since 2005 Omega-9 Oils have eliminated nearly a Billion pounds of trans fat and 250 million pounds of saturated fat from North American foods • Studies show people prefer the taste of foods fried in Omega-9 Canola Oil over common oils
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The Fibria Pulp Value Chain • Fibria in Brazil is the world’s largest manufacturer of pulp for paper • All production is based on planted eucalyptus -- No tropical native trees – A mosaic of 170,000 hectares of preserved native reserves are interspersed with 286,000 hectares of eucalyptus plantations to insure biodiversity • Advanced soil science, forestry management and state-of-the-art technologies control pollution in the mills • Small-scale farmers are permitted to grow maize, beans and manioc in areas belonging to the company to increase biodiversity
• Over 4,000 households currently obtain income from eucalyptus production • 1 hectare of eucalyptus can produce the same volume of wood as 30 hectare of native forest Chile CSV August 29, 2011
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Minera Yanacocha – Latin America’s largest goldmine: Newmont Creating Shared Value in Peru • Newmont has invested hundreds of millions of dollars into the development of Yanacocha, the largest goldmine in Latin America • Newmont’s SME Linkages Program was created strengthen SMEs within Yanacocha’s value system, with a principal focus on transportation, maintenance, construction • The company also supported training of government officials to improve the utilization of Newmont tax revenues to strengthen the infrastructure Social Impact
Business Impact
• 10-15% decreased costs in maintenance, transportation, and other support services
• SMEs bidding for contracts with the mine increased their sales by over 60%
• Improved relations with local business and government leaders
• Created 6,000 new jobs Chile CSV August 29, 2011
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The Purpose of Business • There is an opportunity to transform thinking and practice about the role of the corporation in society
• Shared value gives rise to far broader approaches to economic value creation • Shared value thinking will drive the next wave of innovation, productivity enhancement, and economic growth • Businesses acting as businesses, not as charitable givers, are arguably the most powerful force for addressing many of the pressing issues facing our society • A transformation of business practice around shared value will give purpose to the corporation and represents our best chance to legitimize business again Chile CSV August 29, 2011
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How to Begin: • Redefine the business around unsolved customer problems or concerns, not traditional product definitions • Think in terms of improving lives and strengthening the competitive context, not just meeting consumer needs • Identify customer groups that have been poorly served or overlooked by the industry’s products and societal needs that would strengthen the business
• Identify constraints on the business that the company has the expertise and resources to fix • Start with no preconceived ideas about product attributes, channel configuration, or the economic model of the business (e.g., small loans are unprofitable) Chile CSV August 29, 2011
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Conclusion • Strengthening the educational system and creating new opportunities for economic growth in rural areas are critical to Chile – CSV offers opportunities for companies to help address these issues • The private sector can re-assert its legitimacy by developing authentic programs to simultaneously generate profit and address social challenges • Chile has the opportunity to establish itself as the leader of CSV in Latin America • Business, government and civil society must work together around shared objectives to achieve collective impact
Every company, nonprofit and government agency has a role to play in creating shared value Chile CSV August 29, 2011
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